ENHANCING CASH WAQF MODEL FRAMEWORK

FOR FINANCING HIGHER EDUCATION IN

MALAYSIA: ISSUES, CHALLENGES AND PROSPECTS

BY

ASHARAF MOHD RAMLI

A thesis submitted in fulfilment of the requirement for the

degree of Doctor of Philosophy in Islamic Banking and

Finance

IIUM Institute of Islamic Banking and Finance

International Islamic University Malaysia

OCTOBER 2019

ii

ABSTRACT

Education has many benefits and positive impacts on people’s life. In the world today,

higher education plays a vital role in producing human capital that is considered an

important national resource. As higher education is crucial for human resource

development, the Malaysian government has allocated a substantial amount of public

fund to sustain the operational expenditures of public universities and student

assistance schemes. However, public funding for higher education is facing the

challenge of sustainability. Studies have shown that sustainability challenge is largely

due to the existing cost-sharing funding model. The literature has recommended the

use of Islamic gift instrument model but has remained silent on developing such a

model. Hence, this study has developed an Enhanced Cash Waqf Model Framework

(ECWMF) that could be used to provide sustainable higher education financing in

Malaysia. In this model, cash Waqf institution (CWI) will raise cash Waqf

contributions from the public. These contributions will then be converted (istibdal)

into permanent assets or invested into income-generating assets. Profits from these

investments will be used by CWI as an affordable, alternative source of funds for

funding public universities and student assistance schemes. The study has used mixed

method (interviews and questionnaire survey). The interviews were conducted with 10

experts to validate ECWMF. The questionnaires, developed based on the Theory of

Planned Behaviour, were distributed to 417 respondents, out of which 392 were

usable. The interview data were analysed using thematic analysis while the data from

the questionnaire survey were analysed using the Structural Equation Modelling

(SEM). The study hypothesised that the behavioural intention of higher education’s

students to participate in the ECWMF is influenced by attitude, subjective norm, and

perceived behavioural control. The results of the study from the interview show that

the expert informants have positive perceptions and attitudes towards the ECWMF.

They unanimously agree that the Model is a viable alternative for sustainable higher

education funding in Malaysia. Similarly, the findings from the quantitative survey

data are also positive and promising. The study finds that: (1) when a higher

education’s students has a favourable attitude towards the ECWMF, he/she is more

likely to be a participant; and, (2) if a higher education’s students believes that he/she

has a greater autonomy over factors that might impede or facilitate their participation,

the stronger his/her intention to participate in the ECWMF.

iii

خلاصة البحثABSTRACT IN ARABIC

الموارد تنميةفي العالي التعليممن مقومات الدول. ونظراً، إلى أهمية يعتبر الذيو البشري المال رأس إنتاج في لتعليمإن ل لدعمالتعليم العالي أهمية كبيرة وذلك بتخصيص موازنة عالية من الدخل القومي الماليزيةأولت الحكومة فقد البشرية،الا أن الحكومة تواجه مشكلة الاستدامة تمويل .بةلطلاالمساعدات المالية ل وبرامج كوميةالح للجامعات التشغيلية النفقات

التعليم العالي خاصة مع الازمات الاقتصادية التي تواجهها الحكومة. وبالنظر إلى الدارسات السابقة ذات العلاقة ، فقد أوصت تلك الدراسات أن مشكلة الاستدامة تكمن في طريقة توزيع تكاليف التي تتركز في الجانب الحكومي ، كما

صت الكثير من الدارسات بنموذج التبرعات الخيرية الإسلامية. في هذا صدد ، قامت الدراسة الحالية باقتراح وتطوير أو Enhanced (ECWMF) Cash Waqfالوقف النقدي" -نموذج تمويل متكامل بمسمى "تمويل أولو الألباب

Model Framework يزيا على أساس الوقف النقدي. وفق لتقديم نموذج مستدام لتمويل التعليم العالي في مال من نقدية تبرعات بجمع( CWI) النقدية الأوقاف مؤسسة ستقوم الوقف النقدي"-نموذج "تمويل أولو الألباب

يتم أستثمارها بحيث تكون مدرة للدخل. ثم يتم دائمة أصولمساهمات الجمهور النقدية إلى تحويل يتم ثم. الجمهورن الاستثمار كتمويل بديل للجامعات الحكومية وبرامج المساعدات والمنح للطلبة. ولتحقق من أستخدام الأرباح الناتجة ع

الوقف النقدي" تم استخدام المنهجية المختلطة. حيث تم اجراء مقبلات مع -فاعلية هذا النموذج "تمويل أولو الألباباستبانة على طلاب 417، إلى توزيع خبراء لتتحقق من من فاعلية وامكانية تطبيق هذا النموذج. بالاضافة 10

استبانة قابلة للتحليل. ويجدر الأشارة إلى أن فقرات وابعاد الاستبانة تم تطويرها 392التعليم العالي في ماليزيا ، منها أستخدام . فيما يخص التحليل فقد تم Theory of Planned Behaviourوفق نظرية السلوك المخطط

Structuralللمقابلات واستخدام تحليل معادلة النمذجة Analysis Thematic المواضيعي التحليلطريقة

Equation Modelling (SEM) وقد افترضت الدراسة الحالية ، أن سلوك طلاب الدراسات العليا في .يير يتأثر بالمواقف السلوكية والمعا ECWMFالوقف النقدي" -ماليزيا في المشاركة في نموذج "تمويل أولو الألباب

الذاتية والتحكم السلوكي المدرك لديهم. وفيما يخص نتائج تحليل المقابلات ، فأن جميع الخبراء متفقين على فاعلية ، وأنه بديل قابل للتطبيق في المستدام لتمويل ECWMFالوقف النقدي" -وصلاحية نموذج "تمويل أولو الألباب

تحليل الاستبانات كانت ايجابية وواعدة. وقد أشارة نتائجفقد أظهرت ، وبصورة عامة وبالمثلالتعليم العالي في ماليزيا. الوقف النقدي" -"تمويل أولو الألباب وذجديهم مواقف ايجابية نم العالي التعليم طلابإن ( 1: )يلي ما إلىهذه النتائج

ECWMF ،ة عن العوامل التي قد لديهم قدر عالي من الاستقلالي أنأذا كان طلاب التعليم العالي يؤمنون ب (2)و الوقف النقدي"-"تمويل أولو الألباب نموذجفهذا سيؤدي إلى زيادة رغبتهم في المشاركة في مشاركتهم، تسهل أو تعيق

ECWMF.

iv

APPROVAL PAGE

The thesis of Asharaf Mohd Ramli has been approved by the following:

_____________________________

Mustafa Omar Mohamed

Supervisor

_____________________________

Aznan Hasan

Internal Examiner

_____________________________

Magda Ismail A. Mohsin

External Examiner

_____________________________

Rosylin Mohd Yusof

External Examiner

_____________________________

Radwan Jamal Elatrash

Chairman

v

DECLARATION

I hereby declare that this thesis is the result of my own investigations, except where

otherwise stated. I also declare that it has not been previously or concurrently

submitted as a whole for any other degrees at IIUM or other institutions.

Asharaf Bin Mohd Ramli

Signature: ................................................. Date: ......................................................

vi

COPYRIGHT PAGE

INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

DECLARATION OF COPYRIGHT AND AFFIRMATION OF

FAIR USE OF UNPUBLISHED RESEARCH

THE IMPACT OF MOBILE INTERFACE DESIGN ON

INFORMATION QUALITY OF M-GOVERNMENT SITES

I declare that the copyright holders of this thesis are jointly owned by the student and

IIUM.

Copyright © 2019 Asharaf bin Mohd Ramli and International Islamic University Malaysia. All rights

reserved.

No part of this unpublished research may be reproduced, stored in a retrieval system,

or transmitted, in any form or by any means, electronic, mechanical, photocopying,

recording or otherwise without prior written permission of the copyright holder

except as provided below

1. Any material contained in or derived from this unpublished research may

be used by others in their writing with due acknowledgement.

2. IIUM or its library will have the right to make and transmit copies (print

or electronic) for institutional and academic purposes.

3. The IIUM library will have the right to make, store in a retrieved system

and supply copies of this unpublished research if requested by other

universities and research libraries.

By signing this form, I acknowledged that I have read and understand the IIUM

Intellectual Property Right and Commercialization policy.

Affirmed by Asharaf bin Mohd Ramli

……..…………………….. ……………………………

Signature Date

vii

ACKNOWLEDGEMENTS

First and foremost, I offer my deepest gratitude to Allah (S.W.T) whose compassion

and guidance provided me with the strength to battle against the odds in my quest to

complete this study. Peace and blessings be upon His messenger, Sayyiduna

Muhammad ibn Abdullah (P.B.U.H), his pious kinship, dedicated companions and

followers, for their efforts in making this world a better place to live for the whole of

His creatures.

Here, I would like to express my deepest gratitude to Assoc. Prof. Dr. Mustafa

Omar Mohamed for their support, mentorship, guidance and valuable advice and

information throughout the research. I extend my gratitude to the examiners Assoc.

Prof. Dr. Aznan Hasan (IIiBF), Assoc. Prof Dr. Magda Ismail A. Mohsin (INCEIF)

and Prof. Dr. Rosylin Mohd Yusof (UUM) for their assessment of my thesis.

I must also thank all members of the IIUM Institute of Islamic Baking and

Finance (IIiBF), and the Centre for Postgraduate studies (CPS), International Islamic

University of Malaysia (IIUM) for their numerous supports toward the fulfilment of

my postgraduate studies at IIUM.

I would also like to thank the Malaysian Department of Civil Service (JPA)

and Universiti Sains Islam Malaysia (USIM) for sponsoring my study leave. I would

like to express my appreciation to all informants and respondents for their co-

operation. Special thanks also to my friends and colleagues who supported me in my

endeavour to complete this project.

Last but not least, on a personal level, my indebtedness goes to my beloved

mother Normah Said and special dedication to my late father Mohd Ramli Seman, my

lovely wife Roslizawati Mohd Ramly and my one and only son Muhammad Amirul,

relatives, who remain tireless to see me through my studies and who supported me in

my endeavour to complete this project.

May Allah (S.W.T) accept from me this work and to make it pure for His sake,

for He is able to do that, and my final prayer is praise due to Allah the Lord of the

Universe. Āmin.

viii

TABLE OF CONTENTS

Abstract .......................................................................................................................... ii

Abstract in Arabic ......................................................................................................... iii

Approval Page ............................................................................................................... iv

Declaration ..................................................................................................................... v

Copyright Page .............................................................................................................. vi

Acknowledgements ...................................................................................................... vii

List of Tables ................................................................................................................ xi

List of Figures .............................................................................................................. xii

CHAPTER ONE: INTRODUCTION ........................................................................ 1 1.1 Background of the Study ............................................................................ 1

1.1.1 Higher Education Funding Model in Malaysia .................................. 1

1.1.2 The Role of Higher Education ........................................................... 2

1.1.3 Higher Education Funding Models in Malaysia ................................ 7

1.1.4 The Sustainability of Higher Education Funding in the Cost-Sharing

Funding Model ................................................................................ 16

1.2 Statement of the Problem .......................................................................... 20

1.3 Research Questions ................................................................................... 22

1.4 Research Objectives .................................................................................. 23

1.5 Scope of the Study .................................................................................... 23

1.6 Significance of the Study .......................................................................... 24

1.7 Organisation of the Study ......................................................................... 25

CHAPTER TWO: THE FRAMEWORK OF MALAYSIAN HIGHER

EDUCATION FUNDING ......................................................................................... 26

2.1 Introduction ............................................................................................... 26

2.2 Higher Education System in Malaysia ...................................................... 27

2.3 Higher Education Funding Models in Malaysia ....................................... 29

2.3.1 The Government............................................................................... 31

2.3.2 Student and/or Their Parents ............................................................ 39

2.3.3 Private Companies ........................................................................... 41

2.3.4 Philanthropic Organisations ............................................................. 45

2.3.5 The Universities ............................................................................... 48

2.4 Issues in the Existing Financial Model Adopted by the Higher Education

Sector in Malaysia .................................................................................... 57

2.4.1 The Reduction of Public Funding for Financing Higher Education..

......................................................................................................... 57

2.4.2 Increased Costs of Funding for the Development and Operational

Expenditures of Public Universities ................................................ 58

2.5 Review of Proposed Cash Waqf Model .................................................... 61

2.5.1 Cash Waqf for Funding Higher Education ..................................... 62

2.6 Theory of Planned Behaviour: Review of Related Literature................... 67

2.7 Conceptual Framework and Hypotheses Development ............................. 72

2.7.1 Attitute ............................................................................................ 72

2.7.2 Subjective Norm ............................................................................. 74

ix

2.7.3 Perceived Behaviour Control .......................................................... 75

CHAPTER THREE: DEVELOPING ENHANCED CASH WAQF MODEL

FRAMEWORK .......................................................................................................... 76

3.1 Introduction ............................................................................................... 76

3.2 Cash Waqf as a Potential Source of Funds for Higher Education ............ 77

3.3 The Potential of Cash Waqf in Malaysia .................................................. 83

3.4 The Existing Islamic Institutions For Funding Higher Education ............ 84

3.4.1 Higher Education Funding Model Based on Zakat Fund................. 86

3.4.2 Higher Education Funding Model Based on Sadaqah Fund ............ 88

3.4.3 Higher Education Funding Model Based on Cash Waqf Fund ........ 89

3.5 Cash Waqf Higher Education Funding Models In Malaysia .................... 90

3.5.1 Cash Waqf Higher Education Funding Model Managed by SIRC .. 91

3.5.2 Cash Waqf Higher Education Funding Model Managed by Public

University ........................................................................................ 91

3.6 Conceptual Framework for Enhanced Cash Waqf Model Framework

(ECWMF) ................................................................................................. 93

3.7 Model Specifications ................................................................................ 95

3.7.1 Donor (Waqif) Requirements ........................................................... 96

3.7.2 Cash Waqf Institution (CWI) (Mutawwali/Nazir) ........................... 97

3.7.3 Joint Management Committee ......................................................... 98

3.7.4 Public Universities and Scholarships ............................................... 99

3.7.5 Musharakah Mutanaqisah Investment Arrangement Under ECWMF

......................................................................................................... 99

CHAPTER FOUR: RESEARCH METHODOLOGY ......................................... 107

4.1 Introduction ............................................................................................. 107

4.2 Research Design ...................................................................................... 108

4.3 Qualitative Research Method ................................................................... 109

4.3.1 Sampling Technique...................................................................... 110

4.3.2 Interview Questions ...................................................................... 112

4.3.3 Data Analysis ................................................................................ 113

4.4 Quantitative Research Method ................................................................ 114

4.4.1 Sample ........................................................................................... 114

4.4.2 Sample Size ................................................................................... 116

4.4.3 Survey Questionaires .................................................................... 116

4.4.4 Data Analysis ................................................................................ 120

CHAPTER FIVE: RESULTS ................................................................................. 131

5.1 Introduction ............................................................................................. 131

5.2 Findings of Qualitative Method .............................................................. 131

5.2.1 Profile of Informants ...................................................................... 131

5.2.2 Categorical Themes and Interview Questions. .............................. 133

5.2.3 Challenges Facing Current Higher Education Funding Model ...... 134

5.2.4 Waqf as a Viable and Sustainable Alternative Funding Model for

Higher Education. ......................................................................... 136

5.2.5 Operationalisation of the ECWMF. ............................................... 137

5.2.6 Sustainability of ECWMF. ............................................................. 138

5.2.7 Institutional Platform: SIRC or Corporate?. .................................. 139

x

5.2.8 Challenges of ECWMF Model....................................................... 140

5.3 Findings of Quantitative Method. ........................................................... 141

5.3.1 Democraphic Charateristics and Knowledge on Waqf and Higher

Education Funding ........................................................................ 141

5.3.2 Exploratory Factor Analysis (EFA) ............................................... 143

5.3.3 Confirmatory Factor Analysis (CFA) ............................................ 145

5.4 Measurement Validation ......................................................................... 147

5.5 The Structural Model .............................................................................. 151

5.6 Hypotheses Testing ................................................................................. 152

5.7 Discussions ............................................................................................. 154

5.7.1 The Challenges of Higher Education Funding in Malaysia ........... 155

5.7.2 Alternative Higher Education Funding Model Through Cash Waqf

....................................................................................................... 155

5.7.3 Validation of Enhanced Cash Waqf Model Framework (ECWMF)

....................................................................................................... 157

5.7.4 Attitude, Subjective Norm, Perceived Behavioural Control and the

Intention to Use the ECWMF ....................................................... 157

CHAPTER SIX: CONCLUSION AND SUGGESTIONS FOR FUTURE

RESEACRH ............................................................................................................. 160

6.1 Introduction ............................................................................................. 160

6.2 Conclusions Based on Research Objectives ........................................... 160

6.3 Contributions to the Body of Knowledge and Overall Implications of the

Research ................................................................................................. 162

6.4 Suggestions For Future Research ............................................................ 163

BIBLIOGRAPHY .................................................................................................... 166

APPENDIX A: INTERVIEW SAMPLE QUESTIONS AND PROTOCOL .... 181

APPENDIX B: QUESTIONNAIRE ...................................................................... 183

xi

LIST OF TABLES

Table No 1.1 Number of Public and Private Higher Learning Institutions in

Malaysia

13

Table No. 2.1 The Numbers of Intake, Enrolment, and Output by Levels of

Study in Public Universities, PHLIs, Polytechnics, and

Community Colleges in 2017

27

Table No. 2.2 Three Categories of Public Universities according to SETARA

34

Table No. 2.3 Cash Waqf Higher Education Funding Models Established by

Public Higher Learning Institutions in Malaysia

51

Table No. 2.4 Summary of Related Literature on the Selection of Islamic

Financial Services

70

Table No. 3.1 Summary of Literature Related to Cash Waqf for Financing

81

Table No. 3.2 The Attributes and Differences between Zakat, Sadaqah, and Waqf

85

Table No. 4.1 Operationalisation of Measurement Items

116

Table No. 4.2 Item Pools and Sources

117

Table No. 4.3 Raters’ Area of Specialisations

119

Table No. 5.1 Profile of the Informants

132

Table No. 5.2 Categorical Themes and Interview Questions

133

Table No. 5.3 Sample Demographic Characteristics

141

Table No. 5.4 Knowledge on Cash Waqf and Higher Education Funding

142

Table No. 5.5 Eigenvalues, Kaiser-Mayer-Olkin (KMO) Measure of Sampling

Adequacy, and Bartlett’s Test of Sphericity Results

143

Table No. 5.6 Analysis of Exploratory Factor Analysis

144

Table No. 5.7 Parameter Estimates

146

Table No. 5.8 Parts of the Modification Indices (MI)

148

Table No. 5.9 Structural Equation Model Results 153

xii

LIST OF FIGURES

Figure No. 1.1 Malaysian Economic Transition in Three Different Periods and

the Roles of Higher Learning Institutions

4

Figure No. 2.1 The Cost-Sharing Funding Model in Malaysia

32

Figure No. 2.2 Theoretical Framework of Theory of Planned Behaviour

68

Figure No. 2.3 Conceptual Framework and Hypotheses Development

73

Figure No. 3.1 Conceptual Framework of Enhanced Cash Waqf Model Framework

(ECWMF)

94

Figure No. 3.2 Musharakah Mutanaqisah (Diminishing Partnership) Investment

Arrangement

100

Figure No. 4.1 Research Design

109

Figure No. 5.1 Initial Measurement Model

149

Figure No. 5.2

Final Measurement Model 150

Figure No. 5.3 Structural Model 152

1

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

1.1.1 Higher Education Funding in Malaysia

Education has many benefits and positive impacts on people’s life. Different

education levels such as basic education and higher education provide different

opportunities for a person to acquire knowledge and skills. In today’s world, higher

education plays a vital role in producing human capital that is considered as the best

national resource. As higher education institutions are crucial for the human resource

development of a nation, the allocation of adequate sources of public funding could

sustain the operational expenditures of these institutions.

Tertiary or higher education plays a significant role in developing the economy

and for social progression. The World Bank (2015) referred to tertiary and higher

education as post-secondary education provided in the universities, colleges, technical

training institutes, community colleges, nursing schools, research laboratories, centres

of excellence, and distance-learning centres. According to UNESCO’s International

Standard of Classification of Education (ISCED), tertiary education refers to

programmes with a qualification from levels 5 to 8 which comprise Diploma,

Advanced Diploma, Postgraduate Diploma, Professional Certificate, Bachelor’s

Degree, Masters, and PhD programmes (UIS, 2013). The ISCED standard that

classifies higher education levels from Diploma until PhD has been applied globally.

For example, OECD’s 30 member countries categorise tertiary education levels

2

according to ISCED (OECD, 2014). Similarly, the classification of higher education

levels in many Asian countries, including Malaysia, is in accordance with the ISCED

standard (MOE, 2015).

1.1.2 The Roles of Higher Education

The primary goal of developing higher education is to produce a workforce that is

knowledgeable, well-trained, and qualified. This workforce is responsible for

sustaining the economic growth of a country. Higher learning institutions like

universities supply human capital who play a key role in the development of all

economies. This is particularly true in an economy with increasing dependence on

knowledge, in which higher education plays a decisive function in the creation and

dissemination of high-level knowledge and technology, as well as stimulating

innovation, competitiveness, and productivity gains (Aik Hoe Lim & Saner, 2011;

Brunner, 2013).

The economic growth of developed countries such as the United Kingdom and

the United States is largely attributed to the success of their higher learning

institutions. Universities in those countries produce human capitals with high levels of

knowledge and expertise, which influence a large number of economic outcomes and

boost their long-term productivity (Chapman, 2011). In Malaysia, the first goal of

developing higher education is to fulfil the national need of producing a holistic

workforce who are intellectually and spiritually balanced. This objective differs

slightly from the common view that limits the role of higher education to only

producing human capital with the relevant skills and expertise, without concern for

inculcating moral values. The second goal of developing higher education in Malaysia

3

is to realise the national agenda of restructuring the social and economic spheres of its

multiracial society (Attar, 2007).

As stated above, the first goal of higher education development in Malaysia is

to produce graduates who are intellectually, spiritually, emotionally, and physically

balanced. This goal is in line with The National Philosophy of Education (NPE) that

emphasises the development of individuals in a holistic, integrated, and balanced

manner (Attar, 2007). Given the complex challenges facing today’s generations, like

economic crises, the graduates must be intelligent, capable of making ethical

decisions, and resilient to deal with rapid changes. For that reason, there is an

emphasis on developing moral values, a strong national identity, culture and

civilisation literacy, self-awareness, and interpersonal skills. The objective of this

initiative is to develop graduates with the capability to contribute to Malaysian society

and actively participate in the global arena (MOE, 2015). This strategy expects to

produce human capital who will become the future leaders and workforce to sustain

the economic growth of the country.

The role of Malaysian higher learning institutions as the centre for human

capital development has contributed to sustaining the country’s economic growth. The

graduates with high levels of expertise and knowledge play a major part in the

nation’s economic transition from an agriculture-based economic system to an

industrial-based economic system, then to the current knowledge-based economic

system. The public and private higher learning institutions have been supporting

Malaysia for the past 60 years as the country transformed from an agro-based

economy to a knowledge-based economic system. Figure 1.1 shows the roles of public

and private higher learning institutions in producing knowledgeable, skilled, and well-

4

trained human capital to support the economic growth of the country in three different

economic systems.

Figure 1.1 Malaysian Economic Transition in Three Different Periods and the Roles

of Higher Learning Institutions

(Source: Jasvir Kaur Nachatar Singh (2010); Sato (2005); Mohamed et al. (2000))

As depicted in Figure 1.1, public universities were the only higher learning

institutions in the early years of the country’s independence until 1980. They had

supplied skilled workforce for the agricultural industry that spurred the growth of the

agriculture-based economic system. Later, the transition of the Malaysian economic

system from being agriculture-based to industrial-based shifted the role of higher

learning institutions to produce skilled and trained personnel for the manufacturing

industries. This effort was strengthened with the expansion of higher education

through the establishment of private higher learning institutions (PHLIs) (Jasvir Kaur

Nachatar Singh, 2010; Sato, 2005).

5

The emergence and adaptation of the knowledge economy system at the start of

the 21st century have increased the demand for higher education programmes. This

trend occurs due to the views that higher learning institutions provide facilities and

infrastructure to enhance knowledge and skills for current employment (Kamogawa,

2003; World Bank, 2007). The high demand for higher education certificates requires

the government to expand higher education by establishing and supporting new public

and private higher learning institutions.

Besides its contribution towards to the development of human capital, tertiary

education is one of the main vehicles for nation-building and social cohesion. This

second goal of higher education development is unique to multiethnic countries like

Malaysia, which is represented by a majority of Malays, followed by the Chinese and

Indians. The vision for the development of tertiary education in the country is to

preserve the national interest that refers to nation-building for the purposes of social

justice and national security (Ahmat, 1980; Musa & Ismail, 2007).

In the early stage of higher education development, public universities were the

only higher learning institutions. Thus, they became the instrument to rectify the

socioeconomic gap that existed among societies as highlighted in the New Economic

Policy (NEP) launched by the government in 1971. Under NEP, the enrolment into

public universities was based on an ethnic quota admission policy, with the majority

of students being Malays and Bumiputera1 (A. J. Abdullah, 2012; Sato, 2005).

This mechanism was implemented to balance the socioeconomic gap between

the three main ethnic groups in the country, namely Malay and Bumiputera, Chinese,

1 Bumiputera literally means “the sons of the soil” in Malay. It includes the Malay and other indigenous

peoples in Malaysia.

6

and Indians. Notably, this gap was identified as one of the main factors contributing to

the racial riots in the country in 1969. The spirit of national identity and unity was

preserved through the uniformity of curriculum and the usage of the national language

as the language of integration in all public higher learning institutions. The policy of

inculcating a national identity was also applied to PHLIs through the requirement for

teaching mandatory subjects, such as Malay language, moral education (for non-

Muslim), and Malaysian studies, in these institutions (Tan & Raman, 2009).

In addition to the common roles shared by Malaysian public and private higher

learning institutions in producing the nation’s workforce and inculcating national

unity, universities may also have specific special role (Attar, 2007). The first instance

is the role of Universiti Kebangsaan Malaysia (UKM) in promoting the wide usage of

Malay language as an intellectual language at both the local and international levels.

This role is clearly manifested in UKM’s slogan, “to become one of the universities

chosen to elevate the Malay language and to disseminate knowledge based on the

national culture” (UKM, 2017).

The second example of a special role played by a particular university can be

seen in the case of Universiti Teknologi MARA (UiTM). The specific purpose of

UiTM is to provide maximum higher education opportunities to the Malays and

Bumiputera in order to narrow the economic and intellectual capability gaps among

the various races (UiTM, 2017). The third and last instance of special role played by

specific university is evident in International Islamic University Malaysia (IIUM).

IIUM aspires to educate a new generation of Muslim students who are instilled with

the Islamic concepts of knowledge and learning. In turn, this generation will lead the

Muslim community to be the champions of knowledge and leaders in many fields

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once again, as they had done in the past. IIUM has been providing higher education

programmes especially for Muslims, locally and abroad, with the usage of English and

Arabic as the mediums of communication (IIUM, 2017) .

Therefore, the development of tertiary education is vital not only as a centre for

human capital development and to strengthen the social integration among the

different races in Malaysia, but also to fulfil the special needs of specific groups in the

country. Accordingly, the government has been allocating a significant amount of

public funds annually to ensure the sustainability of the tertiary education sector and

to support its growth.

1.1.3 Higher Education Funding Models in Malaysia

The government is the main funder for the development of higher education in many

countries. In some European countries, for example, Denmark and Germany, the

government is the major funder of tertiary education by allocating an annual grant for

funding the operation and development expenditures of public universities. Moreover,

the government allocates public funds for funding student assistance schemes,

particularly scholarships and student loans that help cover the cost of tuition fee and

living expenses. According to Barnabe (2012), this state-oriented funding model is

implemented in most parts of Europe and Asia.

In contrast, private entities and philanthropists have played a greater role in

funding higher education compared to the government in Anglo-Saxon countries such

as the United States and Canada. This market-oriented funding model is largely

dependent on the financial contribution made by private companies and philanthropic

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organisations for funding the operational expenditure of higher learning institutions

and offering huge amount of research grants (Barnabè, 2012).

Nevertheless, in the past four decades, higher education funding in most

countries has gradually shifted into a mix-oriented funding model with the

participation of all key stakeholders: the government, students and/or their parents,

private companies, and philanthropic organisations (Carpentier, 2012). The

implementation of the mix-oriented funding model is imperative as the governments

in a number of countries are facing financial difficulty in allocating public funds for

the higher education sector. This scenario occurs due to several factors, particularly

the rising cost of providing higher education and a sudden increase in enrolments (D.

B. Johnstone & Marcucci, 2007; Salmi, 2013b; Woodhall, 2007).

The introduction of the mix-oriented funding model is influenced by the cost-

sharing concept which proposes the participation of all stakeholders in funding higher

education expenditures. Under cost-sharing, higher education funding shifts from a

total reliance or near-exclusive reliance on the government or taxpayers, to some

reliance upon private entities and philanthropic organisations. This concept advocates

the participation of the government, students and/or their parents, companies, and

philanthropists to share the costs of maintaining and developing the tertiary education

sector (D. B. Johnstone, 2004b; Woodhall, 2007).

Two cost-sharing mechanisms, tuition fee and student loan scheme, have been

implemented with different structures and models in developed and developing

countries. Examples are the imposition of tuition fee that was once free in China and

the United Kingdom; the increase in the effective cost recovery of student loans in

Australia and New Zealand; and the establishment of student loan schemes in African

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and Asian countries, including Malaysia (Chapman, 2008; Johnstone, 2004;

Woodhall, 2004). In Malaysia, the government applied the state-oriented funding

model in the early stage of higher education development, and later shifted to a mix-

oriented funding model.

The government of Malaysia was the sole founder of higher education in the

initial stage of its development. The role of the government as the only founder,

funder, and regulator of higher education was clearly manifested in the University and

University College Act (UUCA) 1971 (Ahmat, 1980). The implementation of this

state-oriented funding model provided opportunities for the authority to structure

higher education in accordance with the needs of the country. Particularly, the

government applied direct allocation mechanisms for funding the development and

operational expenditures of public universities and financing scholarship schemes.

Abd Rahman, Farley, and Naidoo (2012) explained that direct allocation for

public universities was based on the negotiation method that considers several inputs

such as the number of staff members and enrolments. Meanwhile, the scholarship

scheme referred to a non-repayable aid arrangement offered to the students based on

criteria such as academic excellence and economic background (Barr, 2005). The

recipients of the scheme were not required to refund the amount given, however, they

were required to work with the government agencies for a certain period of time.

Nonetheless, the role of the government as the sole funder of higher education in the

state-oriented funding model has changed with the implementation of the mix-oriented

or cost-sharing funding model.

The transition of higher education funding into the cost-sharing funding model

started in the middle of 1990s with the participation of the main stakeholders, namely

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the government, students and/or their parents, private companies, and philanthropists.

Several factors contributed to the adoption of the cost-sharing funding model,

including the rising cost of providing higher education and the sudden increase in

enrolments. These factors had severely affected the government expenditures and

consequently, the government faced financial difficulty in allocating public funds for

funding the rising expenditures of public universities and financing scholarships to all

students enrolled in the higher learning institutions.

The implementation of the cost-sharing funding model provides mechanisms

for the government to shift part of public expenditures for the provision of higher

education courses to private companies and philanthropic organisations, in their

capacity as the operator of PHLIs. Similarly, the adoption of this funding model has

enabled the government to transfer part of the costs of providing student assistance

schemes to students and/or their parents with the introduction of student loan schemes

(R. Ismail, 2009).

The evolution of higher education funding system into the cost-sharing model

has expanded the resources for funding higher education. In general, the government

allocates public funds for funding the development and operational expenditures of

public universities and financing student assistance schemes. Meanwhile, private

companies, philanthropic organisations, and students and/or their parents provide

funds to cover the operational expenditure of PHLIs and part of the costs of funding

student loan schemes. In particular, the government applies direct and indirect

allocation mechanisms for funding higher education. Whilst the former refers to the

allocation of annual grants for funding the development and operational expenditures

of public universities, the latter denoted the financial assistance schemes distributed to

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the students in the forms of scholarship and student loan (Barr, 2005; OECD, 2012;

Salmi, 2013a; Salmi & Hauptman, 2006).

Direct allocation for public universities was formerly based on the traditional

negotiation method that relies on several inputs such as the number of staff members

and enrolments. In 2010, the Ministry of Higher Education (MOHE) introduced a

performance-based funding system known as System of Rating Malaysian University

and University Colleges (SETARA), whereby the amount of funds allocated for each

public university is dependent on several outputs such as the number of graduates,

research outputs, publications, and number of patents (Abd Rahman et al., 2012).

Furthermore, the indirect allocation mechanism is implemented through the

provision of scholarships and student loan schemes. Scholarships and student loans

allocated to students are used to pay student fee which is one of the sources for

funding the operational expenditures of public and private higher learning institutions.

These schemes also provide financial assistance for students to cover their living

expenses throughout the duration of the study. Therefore, the government is still the

main funder of higher education in the cost-sharing funding model by directly funding

public universities, and indirectly funding PHLIs through the provision of

scholarships and student loans.

The cost-sharing funding model also involves the participation of private

companies and philanthropic organisations as the operator of PHLIs. The

promulgation of the Private Higher Education Institutions Act (PHEIA) 1996

authorises private companies, government-linked companies (GLCs), and non-profit

organisations (NGOs) to operate PHLIs (Jamshidi, Arasteh, NavehEbrahim,

Zeinabadi, & Rasmussen, 2012; Wilkinson & Yussof, 2005). To that end, public

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corporations such as PETRONAS, Tenaga Nasional Berhad (TNB), and Telekom

Malaysia (TM) are operating and financing three premier private universities, namely

Universiti Teknologi Petronas (UTP), Universiti Tenaga Nasional (UNITEN), and

Multimedia University (MMU), respectively.

Moreover, a number of public listed companies such as Sungei Way Group and

Hong Leong Group own Sunway University and Sepang Institute of Technology,

respectively (Mei, 2002; World Bank, 2007). Apart from that, few Malaysian local

companies collaborate with multinational corporations. For example, INTI Education

Group and Laureate Education Inc entered into an agreement to establish INTI

International University, formerly known as INTI University College (Tham, 2010).

The role of private companies and corporations in funding PHLIs has expanded

the Malaysian higher education sector. As presented in Table 1.1, higher learning

institutions in Malaysia can be divided into two, namely public higher learning

institutions that are fully funded by the government, and PHLIs that are funded by

private and corporate entities.